Getting the Right to Collect Rent Directly from Subtenant

In theory, a sublet seems easy: When you let a tenant sublet its space, the subtenant pays the tenant its rent due under the sublease, and the tenant pays you its rent or percentage rent due under the lease. While that’s the way sublet scenarios are designed and expected to work, you can’t count on the tenant carrying out its part of the bargain. After you’ve consented to a sublet, the tenant could decide not, or be unable, to pay you—even if it’s receiving rent from its subtenant. The good news is that you do have options to recoup the rent you’re owed, without relying on the tenant to carry out its obligations.

Thinking outside standard documents—a typical lease or sublet consent form that forces you to sue the tenant for the rent due—can help. To do this, add a clause to a lease or sublet consent form that you, the tenant, and the subtenant sign. The clause should create an assignment of sublet rents by the tenant to you. And the clause should require the subtenant to pay rent to you directly if the tenant doesn’t pay.

Although this assignment of sublet revenues is made when the tenant signs the lease, it doesn’t take effect until the tenant defaults under its lease. This clause is similar to a “Collateral Assignment of Rents and Leases,” which is a document often included in real estate loan documents.

For six key points to include in your assignment of sublet rents clause and Model Language that you can adapt, see “Negotiate Six Specifications in 'Assignment of Sublet Rents' Clause,” available to subscribers here.